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Obtala Resources - forestry update, Mr Market is wrong

By HotStockRockets | Saturday 20 February 2016

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Obtala Resources (OBT) has announced it has entered into agreements to secure an investment of approximately $3 million for its forestry division in return for minority interests and certain off-take rights over specified forest concessions in Mozambique.

The company emphasises that the deal;

“… allows us to materially progress our forestry business in Mozambique. It ensures that Obtala retains a strong balance sheet without the requirement to issue equity or relinquish material interests in the forestry business which we value highly. We now look forward to bringing forward revenues through access to new international export markets that were not previously open to us.”

Hmmm – this though compares to a 15th June 'Timber Strategy Update' that “the board of Obtala has also agreed a strategy to divest the forestry division thereby recognizing its true value”, a 15th October update that “the board of Obtala has commenced a process to list the forestry division… believe it is in the best interest of Obtala shareholders to ‘spin out’ the forestry division in order for the significant inherent value to be recognised and to attract investors focused on the forestry sector” and a 2nd December update that “the company continues with the previously stated intent to maximise value of the timber assets through a process of re-structuring”.

After these and the numbers bandied about, does the transaction now announced (also including that a listing is now anticipated to be “a longer term objective than initially envisaged”) really maximise value?

The market has given its view – with the shares down more than 5.5% at 6.25p to sell. Obtala concludes “our immediate priority is to progress our business plans on both the forestry and agriculture businesses and to ensure that shareholders and stakeholders in the company are rewarded”.

Some folks have taken the view that the $3 million is for a stake in the entire forestry portfolio. The market has misread it. It is for just a fraction and that demonstrates why the share price fails to reflect the full asset backing at Obtala. Having chatted to management we expect more news on this soon. Average down and buy.

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Indeed the market does seem to have this wrong, as you point out some felt that Obtala had given away close to 45% of the forestry asset for only $3m. Not so, they have only given a fraction away, under 5%.

More interesting was the late holdings RNS yesterday. A wealthy Hong Kong based investor, namely Valentin Bovykin, has picked up 5% of the equity, he was formally VP of Nordmet SA.

With a diverse range of assets & strong revenues expected from the farms in 2017 the current low rating could make Obtala a candidate for takeover. The key is Frank S with near 30%, talk was he re-buffed a 23p ‘approach’ last year when the share price was north of 10p.

Very confusing rns . Who is meradell trading ? The spvs receive a fixed 5 % coupon forever of the $3 mill .i make it about 4 % they have given up. So the investors get 5 % forever which isnt bad plus 4 % of the forestry for free.

Apparently the forestry is worth c $160 million plus .given its virtually non income producing and obt for years have never generated any significant income despite all the talk makes you wander where the 5 % coupon will come from . Probably just keep giving them their initial investment back like those ponzi schemes work and every year get some more investors in and give up more forestry until its all gone repaying the coupons from investment . Then eventually liquidate and declare the forestry worth the square root of zero . A forestry ponzi scheme . Perhaps i am exaggerating but it emphasises that the forestry is worth nowhere near the valuation some have been claiming .

Also look what the $3 million is for .a couple of kilns and a sales office … But the real reason working capital. To prop up the business. Its loss making home stores directors renumerations and expenses etc .over the last five years they have made loss after loss on average $8 million per annum . This $ 3 million will be gone pronto . I wouldnt invest here until its comfirmed if scolaros daughter has a company credit card or not…..